The main thought process behind this trade was that the stock was gapping up on absolutely no news and no legitimate reason except for market conditions. So, I made a plan pre-market on what to do, they so-called “what if scenarios”. These were the notes from that morning:
If spike: look for a conformation that the top is in by having ideally having some technical pattern (double top) + an sharp pullback, look to enter into first bounce.
If fade: look for conformation that the momentum has really shifted so that it’s not just a washout, then look to short into the first bounce.
And then we got the first drop which was truly a conformation that the momentum had snapped, then I patiently waited for the bounce to come and pre-placed my orders a bit below the ½ of the drop to be sure that I where to get filled. I filed at $6.30 with small size, As I didn’t want to go too bananas with size since it was somewhat the first time that I played this type of setup, and the fact that the market has been crazy lately. I was also a bit sketchy about this becoming the potential crowd play of they day, witch I do not want to be in and especially not with size, because crowed plays are really unpredictable. Just look at my loss on $PTI from back in 10/18/2018 (Thursday last week) when it absolutely squeezed every possible short that was in to early.
Then as the bounce rejected we started to hold up for a brief second around what I saw as a possible lower high, and therefore got a bit stressed about the idea that this might where to turn on me, so, therefore, I covered up half my position right away. And in hindsight, I understand that I have to work on trusting the setup, and that this type of action actually many times is a signal to add rather than to scale down.
But at least I staid patient with my other half of the position and decided to cover it up just before we where to touch upon a pre-market support area. And of course, if you look at the end of day result I could have traded this much better and been much more patient, but I’m quite satisfied with my trade and my decisions. The only thing that I would like to improve until the next trade comes around is to trust the setup enough so that I don’t get faked out in the consolidation before the drop. But as far as my last cover I’m really satisfied as I took the safe approach rather than swinging for a home run.
My loss on $PTI the other day also made me come up with this idea that there is absolutely no reason for me to try to predict when the top is in, obviously that isn’t my strong suit so therefore I should simply cut it out of my trading. Therefore, I decided to focus in on what seam to be somewhat of my strong suit which is being quite accurate of how big the first bounce after a big drop is going to be, also this type of play keeps me really calm as the chart has already confirmed my thesis of this heading downwards as the setup bases around waiting for that momentum snap. And obviously I won’t be able to capitalize as big in terms of % as if I where to pick the top of a play. BUT I won’t be near as stressed about the play as if I where to try to top short it. And this will most likely also help me to have confidence to add up size on these plays in the future, and then it doesn’t matter that I won’t be able to capitalize as big in % as if I were to short the top, because with bigger size you don’t have to top tick the play to be able to make some good gains. In the end I think it’s all about finding a setup that you are comfortable with, and it feels that this might be one that works out for me. But this doesn’t mean that I won’t practice upon trying to top tick the short, it just means that I haven’t mastered that skill just yet so therefore I won’t trade those picks as aggressive. I will simply practice until I feel comfortable with that as well.
Things to improve upon:
Trusting the setup – I have to work upon trusting the setup and my own analyzes so that I can develop a habit of staying more patient until the stock has proven that my thesis was incorrect. Because as of right now I end up covering because I have un realistic expectations of how fast I want the stock to confirm that my thesis was correct, rather than covering because my thesis was proven wrong. So basically, don’t cover unless your thesis has been proven incorrect.
Supply/demand – start to analyze what the supply/demand situation really looks like a bit better to understand witch stocks that have a chance of being an all-day fader. And more specifically what I have to do Is to write down how many shares I think there is that would like to sell and compare that to the day’s current volume + buying power.
Things I did well:
Playing it safe – The fact that I took the safe approach and only traded the part of the move that I truly understood, which was short into the bounce and cover into the pre-market support was a really good thing that I did within this trade. And of course, I will work upon being more patient and as I mention above getting a better understanding of the supply/demand concept as well. But in the end, I’m still very satisfied with my decision to cover up at the support level.
Cutting out the weakness of my trading – The fact that I have come to an understanding of what my weaknesses and what my strengths are, and therefore customizing my trading after that I truly the best thing I’ve ever done as of so far in my journey. Because I understand that I’m simply not good at determining when the potential momentum is going to shift and therefore I’m simply cutting out trades that bases around that skillset, and instead focus on the trades that I know I can master, such as the first bounce.
And the fact that I haven’t come to this realization until just recently bases around two core things. 1. That I haven’t been tracking my trades visually before until a couple a week’s ago and therefore I could see what and where I was failing at,
and 2. The fact that I couldn’t drop my ego. Because really, until now my ego has been to big, I have been trying to be a hero to play these really tricky patterns and all that kind of stuff. But what I really had to do was just to drop the ego and say “Hey man, you’re not good at these setups, and you don’t truly understand them either, so just stop playing them, and focus in on what you seem to understand. Even though those plays aren’t as “prestige” ranked/ cool as the others.” Because in the end no one gives a sh*t if your playing a super hard pattern/Setup or what seams to be an easy setup, it all comes down to how good you’re at capitalizing no matter what setup it is. I rather be a “easy-setup trader” that capitalizes $1M a year rather then a super stressed “Advance-setup trader” that only capitalizes $200K a year.